HR software for small business UK: what to look for

What to take away

Begin with the duties, not the feature list

The Employment Rights Act 1996 gives employees and workers the right to a written statement of employment particulars, and any later change to those terms must be recorded. A system that cannot issue and version that statement is a filing cabinet with a login.

Holiday entitlement, sickness, family leave and notice periods sit in the same framework, and each one produces a record the software should hold.

The Working Time Regulations 1998 set the rules for statutory paid annual leave. Test whether the system handles entitlement for different working patterns, leave requests, carry-over and balances.

Payroll and HR meet where pay depends on absence, overtime or a change of hours. Decide which system owns the employee record and which one receives it, or you will maintain two versions of the same person.

If you use Xero, QuickBooks, Sage Payroll, BrightPay or Moneysoft, ask the supplier to demonstrate the integration with your chosen payroll package, including how it handles changes and errors.

Where auto-enrolment changes the checklist

Auto-enrolment turns an HR record into a calculation. The Pensions Act 2008 sets out the duties that follow, from assessing each worker to enrolling eligible jobholders and re-enrolling every three years. Pensions Act 2008

Check that the system can apply the minimum pension contribution rules for your scheme, using its qualifying earnings basis, and keep a record of the assessment and contributions.

The system needs date of birth, earnings and the scheme's qualifying earnings basis on one record. If you export a spreadsheet to work out who is eligible, the HR tool is not doing the job.

Small employers often find that payroll software with auto enrolment already holds the assessment, which raises the question of what the HR layer should hold instead.

Employee data, retention and access requests

The ICO's guidance on UK GDPR is the practical starting point for records of processing, lawful basis and retention. UK GDPR guidance and resources Small employers also handle special category data, such as sickness absence, so the lawful condition matters as much as the storage.

Use the ICO's data protection fee self-assessment to check whether your organisation must pay the fee. For subject access requests, test that the system can log a request, track the statutory response deadline and record the response.

Set a deletion rule before the first hire. A leaver's record, an unsuccessful applicant's CV and a sickness note should not share one retention period. Write the rule down, then confirm the software enforces it.

Attach a period to each record type. HMRC expects PAYE records to be kept for three years after the end of the tax year they cover. Pension records follow The Pensions Regulator's own retention periods, which are longer than PAYE.

A leaver's core employment record is commonly kept for six years after employment ends, to match the limitation period for contract claims.

A requirements checklist for small employers

Test each requirement in a demonstration rather than accepting a feature list.

Right-to-work checks are a Home Office requirement. Checks can use an online share code or manual document checks where permitted; ask suppliers how the system records the check and evidence, and supports any follow-up checks. Confirm that evidence storage follows Home Office record-keeping guidance.

Include Statutory Sick Pay (SSP), the National Minimum Wage and the National Living Wage in your tests. Check current GOV.UK rules and confirm that absence and pay information passes correctly to payroll, which must apply the relevant eligibility rules and rates.

Use this checklist to assess suppliers against your own requirements; no supplier paid for a place in it.

Names that come up often for small UK teams include Breathe, BrightHR and Sage HR. Check each supplier's current pricing directly, because quotes vary with headcount and modules.

Pricing is usually quoted per employee per month with a minimum monthly charge, and the figure rises with extra modules such as absence, rota or recruitment. Payroll modules usually cost more than core HR records.

Five steps before you commit

One employee record or two

Many small employers end up with an HR tool and a payroll tool that both hold names, addresses and start dates. Decide which one is the master record and make the other subscribe to it.

If the categories still blur, this explanation of HR software versus payroll software sets out which duties belong to each.

Payroll reporting sits underneath the record

PAYE real time information means a full payment submission reaches HMRC on or before payday. An HR record with a wrong address, a missing National Insurance number or a leaver who was never marked as leaving becomes a reporting problem that payroll has to unpick.

Common questions

Do I need HR software if I employ only a few people?

Not always. A documented process and a shared folder can meet the legal duties at very small headcounts. Software starts to pay for itself when holiday, absence and pension assessment create repeated manual work.

Which should I buy first, HR software or payroll software?

Payroll, because PAYE and pension duties carry penalties and deadlines. Most small employers start there, then add an HR layer when the employee record becomes hard to manage.

What does UK GDPR require for employee records?

A lawful basis, a retention rule you can evidence, and a route for access, correction and deletion requests. The ICO guidance covers each of these, and small employers are not exempt.

Should HR software include payroll?

Not necessarily, and many small employers keep them separate. What matters is that starters, leavers, absence and pay changes move between the two without rekeying.